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Friday, November 25, 2016

The Purpose of Your Business

I often ask this question at my live events; “What is the purpose of your business?” and get a variety of interesting answers. Varying from helping my customers solve their problems with my ‘superior’ service, making the world a better place to the ubiquitous, make money.

I point out, that none of these possibly worthy goals is the purpose of your business. It might be the reason you went into business, but not its purpose.

The purpose of your business is to make a profit. If it’s not, you are running a charity. Nothing wrong with charities, which are non-profit, or even loss making organisations, but that is not the purpose of a business.

Note that making a profit is not the same as making money. Your profit is what’s left over after covering all your costs and paying yourself a decent, market related wage. How much profit should you be making? I argue at least 10% of turnover to ensure you cover sales volatility which can easily turn a 5% profit into a loss. To learn more about small business best practice benchmarks for net profit, read this article on EBIT targets.

While profit may not be the reason you are in business, it is the result at being good at business. Think of your profit as a scorecard that demonstrates your reason to go into business was a good one.